Lending Club Analyst Sees 'Risks Intensifying,' Maintains Sell With 16% Downside

Compass Point Research issued a company update on LendingClub Corp (NYSE: LC) amid valuation concerns due to the company's business risk profile. Compass Point maintained Lending Club's Sell rating and $9 price target.

Analysts Michael Tarkan, Isaac Boltansky and Andrew Eskelsen wrote, "while the thematic risks facing the company have not yet manifested themselves in quarterly results, we expect ongoing fears surrounding competition and regulation, as well as increasing consumer credit and funding uncertainty, to continue to pressure LC shares in 2016. Ultimately, we expect these risks to translate into a more muted earnings trajectory through slower growth and higher expenses."

Compass Point highlighted three primary risks to Lending Club in 2016:

1. Regulation

Analysts believe that regulations regarding discretionary lending to individuals may grow due to concerns over issues such as terrorism financing. With increased supervision from the government, Lending Club's business operations may be damaged.

2. Competition

As new competitors enter the consumer lending space, Compass Point sees the potential for increased marketing costs and a decrease in market share for Lending Club.

3. Consumer Credit

Compass Point notes that while Lending Club's business model has been successful in positive economic times, it hasn't been tested in poor economic conditions and instances of poor consumer credit. Going forward if a recession occurs, individuals may be unable to repay their loans and performance of Lending Club may be called into question.

Shares traded recently at $10.36, down 33. percent on the day.